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Nonprofit tax exemptions and market structure: The case of fitness centers

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  • Harrison, Teresa

    (School of Economics LeBow College of Business Drexel University)

  • Seim, Katja

    (Department of Business & Public Policy Wharton School University of Pennsylvania)

Abstract

Nonprofits are increasingly present in industries with a large for-profit sector, raising questions about their competitive advantage afforded by the nonprofit tax exemption. We estimate an equilibrium model of market structure for recreation/fitness centers to assess whether nonprofit and for-profit firms compete directly for the same customer base. Our results suggest that the two ownership types serve independent markets. Consequently, nonprofits do not meaningfully crowd out for-profit competitors. We find that local property taxes, as a proxy for a firm’s tax burden, significantly affect for-profit entry and that nonprofit entry would fall by 25%, without affecting for-profit entry, if the same property tax liability was imposed.

Suggested Citation

  • Harrison, Teresa & Seim, Katja, 2013. "Nonprofit tax exemptions and market structure: The case of fitness centers," School of Economics Working Paper Series 2013-4, LeBow College of Business, Drexel University.
    • Handle: RePEc:ris:drxlwp:2013_004
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    Cited by:

    1. Andrea Park Chung & Martin Gaynor & Seth Richards-Shubik, 2017. "Subsidies and Structure: The Lasting Impact of the Hill-Burton Program on the Hospital Industry," The Review of Economics and Statistics, MIT Press, vol. 99(5), pages 926-943, December.
    2. Owens, Mark F. & Rennhoff, Adam D., 2014. "Provision and price of child care services: For-profits and nonprofits," Journal of Urban Economics, Elsevier, vol. 84(C), pages 40-51.

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    More about this item

    Keywords

    entry; nonprofit firms; tax exemptions;
    All these keywords.

    JEL classification:

    • H25 - Public Economics - - Taxation, Subsidies, and Revenue - - - Business Taxes and Subsidies
    • L10 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - General
    • L30 - Industrial Organization - - Nonprofit Organizations and Public Enterprise - - - General

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